Capital Asset Pricing Model (CAPM)

A model for pricing risk. The CAPM assumes that investors must be compensated for the time value of money plus systematic risk, as measured by an assetÃ¢Â€Â™s beta. It is an asset pricing model that relates the required return on an asset to its systematic risk. A model that describes the relationship between risk and expected (required) return; in this model, a security's expected (required) return is the risk-free rate plus a premium based on the systematic risk of the security.